A tax primer

For many local school districts this year, extreme workforce reduction measures have been taken. In the worst case locally, Tupper Lake is voting on a school budget with a 10% increase in the levy, and is still laying off 25% of its staff. How can this be so? Are these schools spending tax dollars on something else?  Well, the answer is quite complicated. The amount you pay in real property tax really has to do more with what is happening with revenues other than the property tax, and how much that revenue makes up of the total budget.

                In my work, I have done many town hall information meetings. One of the things come up is when a school or town budget is shown in the newspaper, it often includes, or only includes, what change there will be in the tax rate. This is often a very poor indicator of what is happening with the municipal budget. Tax rates can change drastically with no change in spending, and conversely, tax rates can stay flat when there are large changes in spending.  The town of Harrietstown is a good example. The town itself has a budget of only about two million dollars. In and of itself, this is good, as Harrietstown has a huge amount of taxable value (over 800 million dollars) and a relatively small budget. But, a large part of the Harrietstown budget also comes from sources other than the property tax. Federal grants, state grants and to  some extent, the airport.  The town makes a good deal of money in selling jet fuel at the airport. The town then uses this as offsets on property tax. In good times, the airport helps keep our taxes low. But, when fuel prices skyrocket, and people stop flying planes to and from Lake Clear. A large portion of the revenue for Harrietstown is controlled by what happens at the airport. Back before Cape Air, the prior air transport company had many glitches, causing many flights to be cancelled. Every flight cancelled was less jet fuel, and therefore less revenue to offset the tax burden in the town. Now with Cape Air seemingly doing well, with few cancellations, and adding a 4^th daily flight, the taxpayers of Harrietstown should expect some help in their taxes. So, if jet fuel accounted for $200,000 in extra revenue, and state and federal monies as well as other revenues accounted for $800,000, the levy, or amount to be raised by taxes, would only be 1 million dollars. Now, if jet fuel revenues increased by $50,000 the town could actually add $50,000 to their budget without changing the tax rate, or the amount needed to be raised by property taxes. Conversely, if jet fuel revenues declined $50,000, if all other revenues and cost remained the same, the levy would increase $50,000 or a 5% tax increase but with absolutely no extra spending.

                This is what is happening over in Tupper Lake. Tupper Lake schools rely far heavier on State Aid than Saranac Lake and Lake Placid. So, even a 6% cut in state aid for Tupper Lake is significantly worse than a similar cut in the other 2 school districts. And ironically, school that did spend lavishly are getting the same cuts as those that were frugal. Looking back over the last 3 years Tupper Lake spending has increased 3.89%, 1.01 % and 1.37 percent. When Tupper cuts, it has to be to the bone. Some other districts have spent so lavishly, they actually give every student a laptop to use. This is a simple cut to make when the state reduces aid. But, the hurt is less because of the prior poor spending habits!

                My point is that most local school districts are making some very hard decisions this year. They have no choice but to make very unpopular cuts, such as teachers, aides and sports. But, for most districts, the schools really have no choice. When Tupper has to lay off 25% of their staff, I say they really have gone beyond cutting the fat and taxpayer angst, if it is directed towards the school, it is misdirected. More time should have been spent in prior years on keeping a much closer eye on costs and what is truly needed so that the cuts this year wouldn’t be so draconian. Of course, a much better method of appropriating state school tax dollars would also be a good place to start to get things changed. Another way would be to rid the system of paying for things in the future.

                A big problem with the budget is paying for pensions. The school district(and other municipal governments) have to pay a certain percent of payroll towards the State Pension Fund. Back in the 90’s the level was about the same year to year. Then, in the late 90’s, the stock market exploded. The State decided the stock market was making much more money than was needed to keep the fund solvent. So, they stopped collecting pension money for a few years. This would have been a good time to cut back on taxes as revenues could stay the same, but the expenses decreased. I don’t remember anyone doing that. In fact, new initiatives could be taken because taxes wouldn’t increase. Of course, the chickens came home to roost. The stock market took a dive, and is still lower than its peak over 10 years ago. The state needed that money to keep the pension fund solvent. But, localities cried that they couldn’t afford to start paying back those dollars right away. So, the comptroller decided to delay and delay the municipalities payments, seemingly expecting the stock market to take off again and it would all be moot. That didn’t happen. Now, rather than take their medicine when they should, schools and towns and such are having to pay more into these funds at precisely the worst possible time. In an article today, Mt Vernon schools has abudget which lays off over 100 staff, yet their pension obligation for 2010-2011 is increasing more than 30% over last year. This is what happens when you continue to push problems off into the future and hope some silver bullet will save you.